Société Internationale de Télécommunications Aéronautiques v The Commissioners of Customs and Excise

VAT exemptions for services connected with international air transport must be construed strictly. An exemption for services meeting the direct needs of qualifying aircraft or their cargoes covers services necessary for the operation of the aircraft, not services supplied indirectly to airlines or other members of the air transport community.

The phrase “making of arrangements for” is context-dependent. A service which merely provides the means of communication, even where it is essential to an airline’s business and designed for that business, does not thereby constitute arrangements for the supply of passenger transport or aircraft space.

Société Internationale de Télécommunications Aéronautiques (“SITA”) appealed from a decision of the VAT and Duties Tribunal dated 29 January 2003. The Tribunal had upheld the Commissioners’ ruling that SITA’s telecommunications network services were standard-rated rather than zero-rated.

SITA relied on Article 15.9 of the Sixth Directive and item 10 of Group 8 in Schedule 8 to the VAT Act 1994. The central questions were whether the network services met the direct needs of qualifying aircraft or their cargoes, and whether SITA was making arrangements for the supply of aircraft passenger transport services.

1. The appeal was dismissed. SITA’s services were not exempt from VAT under either Article 15.9 of the Sixth Directive or item 10 of Group 8 in Schedule 8 to the VAT Act 1994.

2. Article 15 exemptions were to be construed strictly. The comparable reasoning in Berkholz v Finanzamt Hamburg-Mitte-Altstadt [1985] 3 CMLR 667 showed that the relevant services were those directly related to the needs of aircraft or cargoes, namely services necessary for the operation of the aircraft. SITA supplied a telecommunications network to its members. The network did not itself meet the direct operational needs of aircraft or cargoes.

3. The qualification in Article 15.6 concerned the type of aircraft and did not extend the range of relevant needs to those of airlines or passengers. The word “direct” also precluded extending the exemption to services meeting needs only indirectly.

4. The domestic exemption was wider than Article 15.9 could require, because the United Kingdom could maintain more extensive exemptions during the transitional period under Article 28. Nevertheless, item 10 had to be interpreted restrictively.

5. The expression “making of arrangements for” had to be interpreted in its statutory context. The decision in Commissioners of Customs & Excise v Civil Service Motoring Association [1998] STC 111 was not binding on the construction of the same words in the different context of item 10. SITA’s network was antecedent to air passenger transport, but it merely enabled communication. It did not arrange the supply of passenger transport or aircraft space.

6. The Tribunal had therefore made no error of law, and its conclusion was upheld.

• High Court (Chancery Division): dismissed SITA’s appeal from the VAT and Duties Tribunal.
• VAT and Duties Tribunal: by decision dated 29 January 2003, rejected SITA’s claims that its services were zero-rated under Article 15.9 of the Sixth Directive and item 10 of Group 8 in Schedule 8 to the VAT Act 1994.